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    Report Format

  • Past Performance Report

    John Smith #1815 - Survey filled 22 Jan 2019
    Risk Score
    Risk Group
    Expected Return
    2 x
    Multiple Vs CDs
    Loss comfort

    Purpose of This Report

    This report is intended to provide you with a realistic picture of how a portfolio, which has been customised for you, has performed over time. The portfolio has been put together based on your survey responses and input from your financial advisor. It is designed to balance your return requirements with your tolerance for market volatility or ‘ups and downs’.

    You have been placed in Risk Group 5, which is composed of 60% stocks, 30% bonds and 10% cash. This is A balanced asset allocation with moderate to high volatility and return and will be referred to as 'Your Portfolio' for the remainder of this report.

    Setting Realistic Expectations

    Starting with realistic expectations of your investment returns is important, as your experience will depend on how you expect your investments to perform over time.

    Investors in Risk Group 5 are typically comfortable losing 33% of their portfolio value in a given year in the event of a serious downturn. In exchange for this risk, they generally expect their portfolio to return 2 times the rate that risk free assets, such as Certificate of Deposits, return over the same period.

    The remainder of this report is laid out in the following sections

    Return Expectations

    Looking at your portfolio's historical returns

    Risk Perception

    In depth experience of market downturns

    Long Term Investing

    Market resilience and wealth creation

    Important Terms:
    Your Portfolio = Risk Group Portfolio 5
    60% stocks, 30% bonds and 10% cash

    Good = Top 5%
    Poor = Bottom 5%

    Recent = Since 1998
    Historical = Since 1970

    Real Return = Inflation adjusted
    Nominal Return = Straight price return

  • Relative Portfolio Returns

    Expected vs. Actual Return

    Figure 1 shows the recent 10 year annualised return of Your Portfolio vs Certificates of Deposits (CDs). On average, this portfolio returned 2.1 times the rate of CDs. This means that if CDs returned 2% in an average year, this portfolio would have returned 4.2% in the same year. Historically the 10 year annualised return for CDs has been 5.8% and recently 2.0%.

    The pie charts illustrate how Your Portfolio would have performed against 3 investors with different expectations of return (Figure 2). For an investor who expected their portfolio to return 2.0 x CDs, this portfolio would have met their expectations 30% of the time and exceeded expectations 28% of the time.

    Portfolio vs CDs return multiple

    Average 2.1x

    Figure 1

    Portfolio vs 1.5x CD

    58% Exceeded

    17% Met

    25% Failed


    Portfolio vs 2.0x CD

    28% Exceeded

    30% Met

    42% Failed


    Portfolio vs 2.5x CD

    16% Exceeded

    12% Met

    72% Failed


    Figure 2

  • Absolute Portfolio Returns

    Nominal Historical Returns

    Historical returns for Your Portfolio over various time periods are shown in Table 1. The numbers illustrate that over a 1 year period returns show larger variability, ranging from -27.96% to +44.23%, than over a 10 year period. Over longer time horizons, the range of returns becomes more predictable and more positive.

    Real Historical Returns

    While nominal returns provide us with an estimate of the percentage change we would have seen in a given year, the real rate of return differs due to inflation. Inflation adjusted returns provide a truer representation of what we can purchase with a given basket of investments over time.

    Table 2 shows the inflation adjusted returns for Your Portfolio over various time periods. Similar to nominal returns, less variability is seen over 10 years than 1 year, as illustrated in Figure 3.

    In a positive inflation environment, inflation adjusted returns will always be lower than their nominal counterparts; note that the 10 year average nominal return rate was 9.53%, while the real return rate was 5.37%. This is because inflation has 'eaten away' at the portfolio’s real spending power.

    Historical Annualised % Return
    • BEST
    • GOOD
    • POOR
    • WORST

    Figure 3

  • Real Recent Returns

    The historical information presented so far has been based on market performance since 1970. Recent returns, over the past 20 years, have been more subdued (Table 3).

    Over a 10 year period, the average recent return was 2.8% per year compared to the historical 10 year average of 5.37%. With this lower average, there has also been a tighter range between the best and worst returns for most investment horizons.

  • Risk Perception

    Sensitivity To Risk

    Your sensitivity to fluctuations in your investment portfolio will be affected by a range of factors. Your risk tolerance, as outlined in your risk profile, is one such factor. The frequency that you check your portfolio, how closely you follow market news and your understanding of how the market moves are other factors.

    In the next section, information is provided to illustrate how your portfolio could fluctuate in value and how this may look and feel from your perspective as the investor.

    Loss Comfort Vs. Greatest Loss

    Investors in Risk Group 5 are typically comfortable with a 33% loss in their investments over a 1 year period, keeping in mind that this loss will eventually be regained in time. In the historical period, the greatest 1 year loss for this portfolio was 28%, which occured in 2008.

    This downturn was accompanied by the biggest peak to trough fall in the period analysed. This market event will be looked at in more detail in the following sections.

    Loss Comfort
    Greatest Loss

    Figure 4

  • Rises and Falls

    Frequency of Returns

    While above we illustrated the extremes of the return range, Figure 5 is a more characteristic image. The darker areas in the distribution below show the most frequent observations. Most return periods are short and represent a small positive or negative return.

    % Returns vs. Months in Stage

    Figure 5

    Monthly Returns

    Figure 6

    Rising, Recovering, Falling

    Figure 6 shows the proportion of time that Your Portfolio was rising, falling and recovering over the historical period. As can be seen, 41% of months were classified as rising, meaning the monthly return was higher than the all time high. Another 25% of months were classified as recovering, meaning the monthly return was higher than the recent low point, but not yet above the all time high.

    The less often you view your portfolio, the more likely you will be to miss short term lulls in performance and the more positive it will appear. If you checked your portfolio monthly, 41% of the time would be rising, whereas if you only checked once a year this would jump to 75%.

    Rising Periods
    • Monthly 41 %
    • Quarterly 58 %
    • Half-yearly 68 %
    • Yearly 75 %
  • Loss Experience

  • Long Term Investing

    1 yr 2 yr 3 yr 5 yr 10 yr
    Best $703,832 $785,010 $892,331 $1,185,989 $1,514,868
    Good $616,901 $713,695 $807,022 $999,932 $1,415,866
    Average $528,034 $556,925 $587,033 $660,767 $890,510
    Poor $432,059 $407,053 $411,561 $426,608 $418,706
    Worst $334,423 $321,768 $354,024 $367,388 $351,465

    Historical real annualised end values - Table 6

    1 yr 2 yr 3 yr 5 yr 10 yr
    Best $667,508 $733,761 $763,526 $924,453 $855,077
    Good $578,334 $631,883 $683,220 $783,999 $800,301
    Average $517,833 $534,243 $553,191 $602,427 $669,365
    Poor $428,789 $394,333 $413,424 $465,020 $460,014
    Worst $361,610 $349,447 $369,279 $385,400 $391,629

    Recent real annualised end values - Table 7

    1 yr 2 yr 3 yr 5 yr 10 yr
    Best $1,425 $3,073 $5,035 $10,122 $25,506
    Good $1,342 $2,925 $4,722 $9,132 $24,159
    Average $1,252 $2,622 $4,115 $7,550 $19,294
    Poor $1,151 $2,293 $3,519 $6,259 $13,556
    Worst $1,041 $2,121 $3,297 $5,772 $12,431

    Historical real savings projection - Table 8

    1 yr 2 yr 3 yr 5 yr 10 yr
    Best $1,388 $2,967 $4,611 $8,640 $17,057
    Good $1,297 $2,734 $4,297 $7,893 $16,717
    Average $1,231 $2,528 $3,897 $6,914 $15,395
    Poor $1,131 $2,216 $3,442 $6,181 $13,045
    Worst $1,041 $2,121 $3,297 $5,772 $12,431

    Recent real savings projection - Table 9

    Historical Real 10 Year Return Frequencies

    Average 5.4%

    Figure 7

    Recent Real 10 Year Return Frequencies

    Average 2.8%

    Figure 8